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FDIC Simplifies Insurance Rules for Living Trust Accounts

February 5th, 2004

The Federal Deposit Insurance Corporation (FDIC) has simplified the insurance rules for deposits held in connection with a living trust, an increasingly popular estate-planning tool. The FDIC is changing the insurance rules for living trust accounts primarily because the existing rules have been confusing for both consumers and bankers.

In general, a living trust is a type of "revocable" trust that enables the owner (grantor) to retain full control over the assets and the designation of beneficiaries during the owner's lifetime. A common characteristic of many living trust documents is that the owner specifies that assets will pass to specified beneficiaries only when certain conditions are met, such as when the person reaches a certain age or graduates from college. These conditions often are known as "defeating contingencies" because they can be roadblocks to receiving an inheritance.

Under the new rules, if a bank fails, the FDIC will provide insurance coverage of up to $100,000 for each "qualifying" beneficiary entitled to a living trust account's assets upon the death of the account owner. As with the existing rules, a qualifying beneficiary is defined as the account owner's spouse, children, grandchildren, parents and siblings. However, unlike the current rules, the new rules will not limit FDIC insurance coverage if there are defeating contingencies in the trust agreement. This means, for example, that a living trust account owned by one person and listing three children as the beneficiaries would be eligible for $300,000 of FDIC insurance coverage - even if the living trust document contains conditions on when the children could get the money.

The revised rule also eliminates the existing requirement that beneficiaries of living trust accounts be named in the records of the depository institution. The FDIC has determined that this requirement is burdensome and unnecessary, especially when living trust depositors may change the trust beneficiaries at any time.

The new rules will become effective April 1, 2004, but the FDIC will apply the new rules to living trust deposits at any insured institution that fails between January 13 and April 1 if doing so would benefit the affected depositors.

Consumers or bankers who have questions about the new rules on living trusts or any other aspect of FDIC insurance coverage may contact the FDIC by phone (toll-free at 877-275-3342), mail (550 17th Street, NW, Washington, DC 20429) or e-mail (using an online form at www2.fdic.gov/starsmail/index.html ). Information on the new rules will be available on the FDIC's Web site at www.fdic.gov

Felinton Elder Law & Estate Planning Centers

Mindy Felinton concentrates in the areas of Medicaid planning, Veterans' Benefits, asset protection, nursing home planning, elder law, wills, estate planning, trusts, living wills, powers of attorney, probate administration and trust administration and began her legal career 30 years ago as an Assistant State Attorney...

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The Law Firm of Evan H. Farr, P.C.

In practice since 1987, Fairfax Attorney Evan Farr is widely recognized as one of the leading Elder Law, Estate Planning, and Specials Needs attorneys in Virginia and one of foremost experts in the Country in the field of Medicaid Asset Protection and related Trusts. Evan Farr has been quoted or cited as an expert by n...

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Ron M. Landsman, P.A.

Ron M. Landsman has been practicing elder law since 1983, before it was known as elder law, originally with Landsman and Laster, Washington, D.C., then Landsman, Eakes and Laster, also in Arlington, VA, and since 1990 in his own practice in Montgomery County, Maryland. He has been among the most active members of the...

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